Bradford & Bingley plans to increase its rights issue to £400 million ($794 million) after US private equity firm TPG Capital pulled out of a plan to buy a stake, sending its shares lower.
TPG pulled out after ratings agency Moody's cut B&B's debt ratings, triggering a clause allowing TPG to terminate the agreement, B&B said in a statement today.
B&B, Britain's biggest buy-to-let lender, had planned to sell TPG a 23 per cent stake for £179 million and raise £258 million through a rights issue. It said it would now seek to raise a net £400 million through the rights issue.
Its shares fell 7.4 percent to 56.5 pence this morning, after falling as low as 52p, below their rights issue price of 55p. The bank has not changed the subscription price for the enlarged offer.
"For B&B, the capital position is ultimately unchanged; it will receive the same amount of capital but now from a larger rights issue," analysts at Cazenove said.
"However, the trading performance remains weak, and we expect it will continue to deteriorate as impairment rises and the rating downgrade leads to additional funding costs," Cazenove added, keeping an "underperform" stance on the shares.
B&B said several of its biggest shareholders, including Standard Life, Prudential's M&G, Legal & General and HBOS's Insight were supporting the enlarged rights issue.
Citi and UBS will still underwrite the rights issue, the bank said.
A credit trader said the new plan was good for B&B. "TPG pulled out, having pulled a fast one in securing a huge discount, but now Bradford is going to get a stronger investor base," the trader said.
But equity analysts said there was a risk that much of the cash call would be left with the underwriters. Retail investors own about 40 per cent of B&B's shares, and they are typically less likely to take up their rights, especially with the shares near the offer price and UK household finances under strain.
Shareholders had been due to vote on the TPG investment and rights issue plan on Monday, but the bank said the meeting would be adjourned, probably until the week of July 14th, and a supplementary prospectus issued.